Stéphane Dion has announced that he would eliminate the tax on income trusts. He would replace it with a 10 per cent levy—refundable to Canadian investors but not foreign residents. The replacement tax is estimated to generate $1 billion over four years, and is expected to restore some of value lost by the trusts when the Conservative government broke an pre-election promise and implemented the tax.
The Stephen Harper government imposed the 31.5 per cent tax—which will not take effect until 2011—because Telus, BCE and others had indicated they would convert to the income trust structure—income trusts don’t pay corporate taxes, but distribute all their taxable income to unit holders.
Income trusts appeal to investors like retirees because they are a good source of monthly income. Many of these will probably welcome the Liberal plan.
When the Conservatives announced they were going to tax the income trusts, it was a very unpopular move. But most observers believed it was necessary because the move to the income trust structure by so many large companies would have resulted in a significant loss of revenue for the Canadian government.
Chances are, the Grits will arrive at a similar conclusion once they get another chance to balance a federal budget. and so I'd not advise seniors to hold their breath waiting for the Grits to cancel the tax.